AIFMD depositary pricing collapses

EUThe cost of using a depositary under new regulations for alternative funds is predicted to be much lower than originally feared, with expected prices collapsing by 50%.

Fund managers and administrators have revised their cost projections and many expect to pay no more than 2.5 basis points.

The Alternative Investment Fund Managers Directive (AIFMD) heralds stricter responsibility for depositaries, making them liable for assets lost due to fraud or other causes. It was originally thought depositary costs could be as high as 5 to 25 basis points as depositary banks sought to offset their increased regulatory risk.

Multifonds, a funds software company that carried out the survey, says managers and administrators are showing a “significantly more positive attitude” to the AIFMD as the July 22 authorisation deadline approaches.

The survey bears out a recent Funds Europe report into custody banking in Ireland, which found anecdotal evidence of downward pricing. In the report, Charles Bathurst, adviser to Sumi Trust Global Asset Services, says: “When the original fees were proposed, the managers complained and the fees collapsed. The market has brought prices down and that is very good for investors as performance will be largely unaffected.”

In its survey of 61 participants with the equivalent of €33 trillion under administration or management, Multifonds finds that 68% expect the lower depositary cost of 2.5 bps or less, which contrasts with its 2013 survey that found more than three quarters of those expressing an opinion expected to pay about 5–25 bps.

Further findings are:

  • 53% expected EU managers to leave Europe to setup offshore structures to avoid the additional costs, a drop from 77% last year
  • 72% say the AIFMD “passport” will help them gather more assets in Europe
  • 82% agreed that the AIFMD looks set to achieve its goal of improving protection for investors
  • 66% of respondents now cite reporting to regulators as their most pressing challenge
  • 33% of fund manager respondents have AIFMD reporting provisions in place

Keith Hale, Multifonds’ executive vice president for client and business development, says: “In previous years, the unclear cost of complying with AIFMD presented a real concern – the presumed high cost levels would be the tipping point for the Directive’s ultimate success or failure. With depositary costs in particular now looking to be far lower than expected, this year’s survey shows that those concerns have subsided and the outlook is more positive for AIFMD.”

He adds that fund managers must figure out how to marry their multiple systems together and then aggregate, store and report the resulting data.

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